Prospective Homeowner? Don’t Forget to Consider These Costs

Driving by a gleaming new apartment complex, my spouse quipped, “We should sell our house and move there, life would be so much easier.” Stunned, I thought of our single-family home we spent years saving for, and shot back, “Noooo! We’d have less space and rent would go up every year and we’d have inspections and pay pet fees and what if we had obnoxious neighbors?” Calmly, my spouse replied, “But think of all the money we’d save. We’re constantly fixing something. How much does our house cost us each month?”

I didn’t have an answer. I had dozens of budgeted categories and home-related savings, but hadn’t actually added them together as a unified home expenses total. I combed through my categories and discovered that our standard mortgage payment (which includes escrowed property taxes and insurance) only accounts for 40% of our total monthly home-specific expenditures. Yikes. While we appreciate the stability that homeownership provides for our family, the real cost may not be sensible for everyone. If you’re contemplating purchasing a home, here are common but under-discussed costs to consider:

At some point, nearly everything will need fixing or replacing

The roof, siding, windows, exterior doors, furnace, water heater, toilets, flooring, and so much more will need to be replaced. These expenses can be budgeted over decades, but unless $500 or more is set aside each month for these replacements, a loan, such as home equity line of credit, may be necessary in the future.

A larger house means higher expenses

While spacious square footage is pitched as a major selling point, a larger house inevitably costs more. These include but aren’t limited to:

-Higher utility bills, particularly for heating and cooling.

-Higher-capacity heating/cooling appliance replacements.

-Costlier roof/siding/window/flooring replacements.

-Higher homeowner’s insurance premiums.

-Higher property taxes.

-More furniture and decor.

Tip: stick to that three-bedroom-two bathroom house (or smaller!), unless you have a specific need for a larger estate (like multigenerational living or dedicated space business space).

Home emergencies happen, and are essential to budget for

Even with regular maintenance, unexpected problems arise that can’t be ignored, especially if an emergency involves plumbing, electrical, or natural gas. Setting aside a home emergency fund equivalent to approximately 2% of the home’s value should be factored into home expenses. (Note: I recommend 2% instead of the standard 1% to reflect the rising costs of labor, materials, and appliances).

If you aren’t handy, you may need an appliance maintenance package

Some utility companies offer customizable appliance maintenance and repair packages that can cost $100 or more each month. So far, our maintenance package has repaired our furnace, fireplace, air conditioner, clothes dryer, and refrigerator with no additional out-of-pocket costs. These maintenance packages may be particularly useful for households with older appliances.

You may be assessed special fees by your city

Cities sometimes assess special one-time fees for repaving a neighborhood road, replacing sewer lines, or updating the power grid. We received an unexpected municipal letter announcing our neighborhood road was slated to be replaced, and our household share would be $6,200. Ouch.

Exterior upkeep is significant

Mowing the lawn, bagging the leaves, and clearing snow from the driveway all require tools and time. That lawnmower, weed whacker, leaf blower, and snowblower need maintenance and at some point, replacement. The additional “curb appeal” extras, like potted flowers, may generate a reoccurring springtime cost.

Consider the age you’ll be once your mortgage is paid in full

The current economic and real estate climate has delayed homeownership for many. With a standard 30-year mortgage, many first time homebuyers will be paying their mortgage into retirement years. In order to take advantage of future mortgage-free years, consider looking for home attributes that are compatible with aging-in-place, such as single-floor living, wide doorways, and at least one spacious bathroom. This will help prevent costly accessibility renovations down the road.

Final thoughts

While homeownership has long been pitched as the optimal living arrangement, the rising costs and hidden expenses may not be the sensible choice for everyone. Knowing the real costs of homeownership will help prospective first-time buyers make informed, financially sound decisions.